Last year sales tax in State Y was raised by 1 %, with the additional

Para-

levy of sales tax >>> excess allotment for improvement in education.
In a county of the state -- Representative Smith has prepared blueprints detailing 3 new schools and 2 roadways designed to be unaffected by floods.

Requirement -

the largest obstacle facing Representative Smith's plan to use sales tax revenues to build additional schools in outlying areas of County X

Solution -
Actually, choice E is straight answer, as it tells us that the funds can be allotted only for the construction or remodeling of school buildings, and curriculum improvements, so the proposal of Rep Smith is not covered under the planned expenditure.

But what could be other reason that one can think of-
1) The funds earmarked are less.
2) The original plan does not include such expenditures.
3) There is already excess of schools in the general area.

A. County X has rejected a proposal to establish toll stations along frequently-traveled roads in the county, even though funds raised were to be directed to Representative Smith's project
We are concerned with the government's allocation to Smith's project. So, out of scope

B. Students in County X currently travel an average of 20 miles in order to reach an existing school.
Again, this may be a reason to accept proposal, rather than reject, as roads are bad, and students have to travel on such a large stretch.

C. More densely populated counties in State Y will receive a larger percentage of the total revenues generated by the sales tax increase.
We do not know the cost of Smith's project and the population of county X.

D. Provisions of the sales tax revenue rules allow funds to be used for any project impacting the education of at least 2% of students in County X.
Again nothing about the number of students and what is the likely coverage by this project.

E. The state has stipulated that sales tax revenues designated for education be used only for the construction or remodeling of school buildings, and curriculum improvements.
If the project does not fall into the proposed expenditure, the project would of course be rejected.

E